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Demand For Ecb Loans Raises Bank Funding Fears

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Fears that financial institutions are still facing problems securing market funding have been raised after the European Central Bank (ECB) saw stronger than expected demand for three-month loans.

Banks across the eurozone on Wednesday borrowed €149.5bn (£127.2bn) during the ECB's 98-day liquidity operation, far higher than analysts' expectations of €105bn. The interest rate attached to the loans is indexed to the central bank's main refinancing rate, which currently stands at 1pc.

The ECB said 270 banks bid for funds in the tender, where banks are guaranteed to get all the money they request. Each institution is required to settle its loans on March 31.

The funds were issued ahead of Thursday's deadline for €97bn-worth of 12-month loans. Banks will also be given a chance to take a 13-day loan from the ECB to smooth over the year-end period.

Banking analysts said the 98-day loan figure indicated "ructions in eurozone peripheral markets", but added the picture would not complete before 13-day tender results were announced on Thursday.

Elia Lattuga, analyst at Unicredit said: "This would suggest there has been some reduction in demand from core countries and a small increase from peripheral countries. Tensions remain, but to understand fully the situation in peripheral banks, we need to see [Wednesdy's] numbers."

So on March 31 do they settle the loans by taking out new loans with the ECB?

Although if the market is wanting a higher rate than the ECB from a business point of view your going to borrow from the ECB.

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